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Answer to Question #49428 in Other Economics for shakeeti

Question #49428
The price of U.S.-produced long grain rice fell by 40 percent from January 1999 to January 2000. In response to the price fall, growers of U.S. long grain rice planted 17 percent less acreage in 2000. If the harvest also decreases by 17 percent:
a) How would you describe the supply of U.S. long grain rice?
b) How do you think production possibilities and storage possibilities influence the price elasticity of supply of long grain rice?
c) Calculate the price elasticity of supply of U.S.-produced long grain rice.
d) If the price of long grain rice remains the same, do you think the elasticity of supply will change over the coming years? Explain your answer.
Expert's answer
The price of U.S.-produced long grain rice fell by 40 percent from January 1999 to January 2000. In response to the price fall, growers of U.S. long grain rice planted 17 percent less acreage in 2000. If the harvest also decreases by 17 percent:
a) The supply of U.S. long grain rice is inelastic.
b) Increasing production possibilities and storage possibilities can decrease the price elasticity of supply of long grain rice.
c) Ed = 17%/40% = 0.425 < 1, so the supply of U.S. long grain rice is inelastic
d) If the price of long grain rice remains the same, the elasticity of supply will decrease over the coming years, as producers can adapt to the change in price their production and storage abilities.

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Assignment Expert
27.11.14, 18:17

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shakeeti
26.11.14, 21:14

thanks

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